The Enterprise System Spectator

Wednesday, December 17, 2008

Sage launches on-demand offering targeted at micro businesses

Dennis Howlett got an early look at SageLive, Sage Software's new software-as-a-service (SaaS) offering. According to Howlett, the system is being targeted at very small businesses:

These services are aimed at micro businesses where the user count is most likely to be a single user plus the accountant. The typical customer will be a lifestyle business that might be selling goods or services and may not keep any books today.

Sage is opting for a soft launch with SageLive, the brand which Billing (a free service) and Cash (paid for) will occupy. As of tomorrow, the company will be in open beta and eliciting feedback.

Pricing is in the range of £10 per user per month, which at today's exchange rate would be about $15.

It's not clear from Dennis's post whether the system will be offered outside of the UK. Nevertheless, it will be an interesting case study on several levels. First, whether so-called micro-businesses can be induced into taking a SaaS approach to accounting. Many of these businesses scarcely keep any books at all. They just turn over a pile of expense receipts and bank statements to their accountant. Will they be willing to turn over nearly $300 a year to Sage to automate the process?

Secondly, as Dennis points out, can a traditional software vendor such as Sage make the transition to the on-demand world? Dennis is not entirely convinced, but read his whole post for more details.

Update: Read Dennis's second post, outlining the architecture, functionality, and mobility features of SageLive.

Update, Dec. 18. David Turner offers an alternative approach to financial systems SaaS. His CODA 2go application is built on top of Salesforce.com's Force.com platform. He writes, "It’s cut years off our time to market and given us the freedom to focus on application development, which is what we do best. It also gets us quickly past any security concerns that users might have, by using a hosting service and infrastructure with an outstanding record over many years."

Tuesday, December 16, 2008

Court dismisses some Oracle claims against SAP in TomorrowNow lawsuit

SAP won a small victory in its defense against Oracle's lawsuit over SAP's Tomorrownow business unit. The U.S. district judge overseeing the case agreed with SAP yesterday that two Oracle legal entities do not have the grounds to sue for copyright infringment, as they do not hold the copyrights. One Oracle entity does have such grounds however.

Nevertheless, the judge rejected all other motions by SAP to dismiss Oracle's case. SAP had argued that TomorrowNow personnel could not have committed breach of contract by improperly accessing Oracle support materials as those personnel were not parties to the customer contracts.

Bottom line: the case will go forward and SAP is still in a heap of trouble.

Monday, December 15, 2008

SaaS: plan to get out before you get in

A question about software licensing contracts on Ray Wang's blog, prompted me to think about issues involving the use of software-as-a-service (SaaS) for mission-critical applications. Specifically, the issue of vendor lock-in.

If you thought vendor lock-in was a problem with traditional on-premise ERP software, think about the issue when it comes to SaaS. Under a perpetual license agreement for on-premise software, you always have the option of going off maintenance but continuing to run the software, and perhaps maintaining it yourself.

But with SaaS, there is no such thing as going off maintenance. If you stop paying, access to your mission-critical system gets cut off.

Therefore, I think it is important for buyers to think about what will happen if and when they decide to migrate from their SaaS provider. Specifically, there are two things I believe that buyers should ensure are in their license agreements:

First, if the SaaS provider offers an on-premise version (e.g. Oracle On-Demand), ensure that there are terms and conditions that allow you to transition to an on-premise version. This covers cases where you want to continue to use the software but are no longer satisfied with the hosting arrangement.

Second, if the SaaS providers does not offer an on-premise deployment option (e.g. Salesforce.com), be sure the provider gives you the ability to extract all master file and transactional data to an open format (e.g. XML). The ability should be repeatable--not a one-time right--so that you can develop migration programs to facilitate conversion to a new SaaS or on-premise solution.

Software-as-a-Service is becoming more and more accepted as a deployment option for enterprise systems. But if the application is truly mission-critical, be sure you have an escape plan in advance.

Update, Dec. 28. I just came across this blog post by the folks at Zoho, which competes at one level with Salesforce.com for CRM customers.

Salesforce has repeatedly tried to block customers from migrating to Zoho CRM, by telling them (falsely) that they cannot take their data out of Salesforce until their contract duration is over. We have emails from customers recounting this.

If true, and I have no reason to think it's not true, it underscores the need for customers to take proactive measures to mitigate vendor lock-in by SaaS providers.

Update, Feb. 13, 2009. For a really sad story on difficulties getting out of a SaaS relationship, read this account concerning NetSuite. I do not know if current customers of NetSuite are having similar experiences.

Wednesday, December 10, 2008

Infor layoffs, Dec. 2008

A Spectator reader reports that Infor is in the process of laying off 400 people worldwide, December 9-10. He writes, "I made it through over 10 years, and several acquisitions. Time to say goodbye!"

I emailed this information to Infor, which responded with a written confirmation:

Infor is undergoing a net headcount reduction of approximately 5% of its workforce, which is significantly less than its primary competitors. Like many companies, Infor is aligning its workforce to reflect the realities of the global economy. At the same time, Infor is accelerating several strategic business initiatives to keep pace with its innovative product strategy, increase efficiencies and improve the services it offers to customers. Infor is a healthy, profitable company and these actions position it for exceptional growth when the economy recovers.

Infor is not alone among enterprise software vendors in making headcount reductions, of course. Epicor, Sage, Consona, Lawson, and Oracle have taken similar actions in recent weeks.

If you have additional information regarding Infor's action--e.g. what functions have been affected--or layoffs at other vendors, email me or leave a comment on this post.

Tuesday, December 09, 2008

Crack in the dike for SAP maintenance fee hike

It appears that SAP's forced march to higher maintenance fees is not going so well on its home turf.

The Financial Times first reported this morning, in German, that SAP has agreed to let its customers in Germany and Austria to stay on on their current maintenance contracts through 2009. Previously, SAP had unilaterally forced all such customers to upgrade to its more costly enterprise support. I was first alerted to the FT article in a tweet by James Governor (aka Monkchips).

SAP's backpeddling only gives relief to its customers in Germany and Austria, but it is hard to imagine that clients in other geographies won't demand the same treatment. They should.

Dennis Howlett is following the story and is posting additional news and commentary as he finds it. He writes:

This is a major victory for SAP customers who, despite SAP management’s protestations to the contrary have continued to lobby for reconsideration of SAP’s maintenance package pricing. According to the FT, some 50-60% of SAP customers in Germany and Austria were deeply unhappy with the measures, citing economic pressures contributing to difficulty in justifying what was already a tough budgetary sell. Computerwoche confirms that SAP had only managed to persuade 25% of its customers to changeover from standard to enterprise support.

Update, Dec. 10.Vinnie Mirchandani questions whether a maintenance fee rollback to 17% of license cost is enough for SAP, as even that level of cost is too high for the value delivered.

Update, Dec. 10. Dennis Howlett follows up his original post with a phone call from Bill Wohl, an executive at SAP. Wohl says that there are specific legal issues in Germany and Austria that required SAP to tear up existing contracts and issue them afresh so that it could impose the price increase.

Howlett points out that this has created an incredibly complex situation for multinational customers that have different contracts in different countries. He also thinks that SAP is not really hearing its customers on how much resentment the price increase has generated.

Friday, December 05, 2008

Follow the Spectator on Twitter

After months of resisting, I've starting Twittering. You can read my tweets (Twitter posts) at http://www.twitter.com/fscavo. To follow me in real time, you'll need to set up a free Twitter account if you don't have one.

I'm using Twitter to do quick notes on items that I think may be of interest to Spectator readers, especially when I don't have time to do a full post on the Spectator. I also post quick updates on things I'm researching. Plus a small amount of chatter, which I try to keep to a minimum, so as not to annoy people.

I started Twittering about a week ago, and it's already led to some interesting exchanges with other IT professionals and analysts. It also has proven to be a good source for chasing down leads/news/rumors.

Read this Wikipedia entry for more on Twitter itself. There's also a list of my most recent tweets in the right hand column.

Recession prompts great financing deals from IT vendors

An IT leasing agent recently told me that business has actually picked up in the past few months, as a result of the credit crunch. Those leasing firms that still have access to capital are finding buyers more willing to consider financing, where they might have done purchase deals in the past.

Now, major IT vendors are getting in on the act as well. Vendors that have access to capital are offering financing on attractive terms in order to get prospects to close deals.

Dell last week offered its zero-percent deal for "qualified large businesses" that lease Dell and EqualLogic hardware for 12 to 48 months. The company is also allowing "best credit" large businesses defer their payments for three years if they buy at least $40,000 worth of hardware by January 23, 2009.

Microsoft is taking a similar approach in pushing its Dynamics line of ERP systems:

Microsoft, for example, is promoting the zero-percent rate for new customers of its Dynamics ERP and CRM systems whose purchases total between $20,000 and $1 million. The deal must be made before March 20, 2009. Brian Madison, Microsoft Financing's general manager, says he can't yet specify numbers on how many clients have been granted the low rate since the offer was made in mid-November. He told CFO.com the "lending approval rates have been in line with, or better than, industry norms."

The article also mentions SAP as a vendor making aggressive financing offers.

Financing options for enterprise systems deals--whether financed by the vendor, or by a third-party--are often a good approach for organizations to conserve cash and improve the timing of costs and benefits. The aggressive terms currently being offered by certain vendors only makes this option more attractive. If you are about to negotiate a new deal, be sure to ask about financing options.

Thursday, December 04, 2008

JDA calls off merger with i2

It's now official. Following weeks of speculation, JDA has canceled the merger it announced back in August with i2.

In its press release, i2 said it expects to receive the non-refundable termination fee of $20 million from JDA within three business days.

JDA did not agree to disclose any information about why it canceled the deal. However, it did announce in November that it needed more time to secure financing, leading to speculation that the global credit crunch might force JDA to pull out.

This leaves i2 back in the same place it was before JDA extended its offer, looking for a way to rebuild its leadership in supply chain management, but now in a market that is much weaker than before. There is little danger for the short term, however. i2 has a strong cash position, with $220 million in cash and equivalents, as of September 30.

Wednesday, December 03, 2008

Sage layoff in North America

Sage confirms a tip passed on to me of a layoff yesterday within Sage's North American business. A Sage spokesman confirmed that the layoff affected 150 employees (about 3%) from across Sage North America.

He writes:

We're supporting all of the people involved by offering severance and outplacement services. We're now at about 4,800 across North America. The reduction affected roles across the business, except for our Healthcare Division, which underwent a reorganization in July. Yesterday's changes are part of cost reduction efforts across the business that will help to ensure we continue to be competitively strong.

Monday, December 01, 2008

H-P cuts IT spending in half

H-P's IT spending is planned for about 2% of revenue in 2009, compared to 4% in 2005. That's a 50% cut, but it's not because of the weak economy. Rather, it is the result of an aggressive IT restructuring and consolidation project initiated several years ago by CEO Mark Hurd and CIO Randy Mott.

The IT restructuring began just after Mr. Mott joined the company in July 2005, and will lower IT costs by more than $1 billion a year from that year's levels, in line with its estimate when it began the plan.

H-P will be able to reduce spending on internal IT from about 4% of revenue in 2005 to less than 2% in 2009.

The company also consolidated more than 85 IT data centers globally to six centers in three locations, which are expandable to accommodate growth. It also consolidated more than 6,000 applications running the business to about 1,500.

The company reduced its annual energy consumption in its data centers by 60% as it decreased the number of servers by 40%, while increasing processing power more than three-fold.

Technically, organizations such as HP show up in the list of companies cutting IT spending this year. But again, it has nothing to do with weak economic conditions. Rather, it has to do with a broad trend toward consolidation and finding efficiencies in delivery of IT services. Sun Microsystem's massive ERP consolidation project is another example. Remember this when you read the reports of IT spending cuts this year. Some of it would be taking place even if the economy were booming.

Negotiating enterprise software deals in Q4

Ray Wang and Vinnie Mirchandani each have good posts this morning on negotiating software deals. Ray focuses on recommended buyer tactics in the current economic environment. Vinnie does a rerun of what he calls his "Top 10 Stupid Salespeople Tricks."

In both the enterprise and SMB space, recent market conditions point to a lack of available financing for enterprise software purchases. This trend will continue as the credit markets tighten. The result - vendors will be more inclined to discount. Enterprises engaged in contact negotiation with software vendors should take this opportunity to seek additional discounts as the scarcity of new deals will put customers in the driver seat.

Ray continues with five tips for buyers.

Vinnie's "stupid salespeople tricks" include "We want to be a partner, not a vendor," "One of us does not belong," and ""You are trying to commoditize us." Read his whole post for the full list of ten.

Both take a shot at revenue recognition as a vendor excuse. I covered the revenue recognition issues in my previous post. Although I believe revenue recognition is a legitimate issue, Ray encourages buyers to push back when vendors claim it hinders their flexibility:

Have the vendor demonstrate the range of discounts as they apply to their VSOE rules. Often times, the sales person is confused about how these rev recognition rules impact the deal and will “hide” behind these rulings. Breaking down the revenue recognition components often identifies hidden opportunities. Keep in mind there are some limits.

A client CFO challenged a software salesman and asked to speak to his Controller about a so-called recognition issue. The issue magically disappeared soon after. We agreed it probably was a "commission recognition" issue rather than a revenue recognition issue.

Regarding the current economic climate, my own observation is that there are still quite a few organizations out there planning to buy software, at least here in Southern California. A local SAP SMB reseller told me last week that he has never been busier, believe it or not. But most deals have already slowed to a crawl. Buyers that are able to move forward, however, will find themselves in the driver's seat when it comes time to negotiate.

I'm interested in hearing about best practices, lessons learned, horror stories, and case studies of success or failure.

Selecting a new enterprise system can be a difficult decision.
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For information on how we can help your organization make and carry out these decisions, write to me.

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